Porter's Five Forces Model for Industry Analysis

This essay is an attempt to apply the Five Forces Model for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979 that draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Within the ambit of Porter’s typology, this essay aims to analyze the attractiveness of industries for investment and seeks to identify their potential for change or adaptability within the context of the inherent constraints and opportunities which exist in any given organizational environment. To achieve the above, a thorough introductory outline of the Five Forces Model will be laid out, citing its content and its pros and cons as a tool for analysis and business strategy in the organizational environment. Concomitantly, relevant concepts shall be defined in order to generate more understanding of the subject matter. A case study of the mobile telecommunications sector will be carried out in order to contextualize the topic and put issues into perspective. A conclusion will then be drawn from the discourse. To begin with, any attempt to define a concept requires an investigation into its characteristics. For the term ‘organization’, it is perhaps easier to say what it is not rather than what it is. However, according to Porter, Lawler and Hackman (1975) (quoted in ABE (2010:10), organizations have the following attributes: they are composed of individuals and groups; they have some degree of permanence (they are going concerns); they exist in order to achieve certain goals; and they involve specialization and require rational control and co-ordination. In other words, therefore, organizations are social entities that involve two or more people. Secondly, they are permanent in the sense that their existence is not usually tied to the achievement of one goal. However, some organizations such as pressure groups cease to exist after the attainment of one particular objective. An example is the Red Card Campaign orchestrated by Father Frank Bwalya, a catholic priest, that was bent on de-campaigning the then ruling Movement for Multi-party Democracy (MMD). On the other hand, some organizations that may have started out with similar limited objectives continue to exist after they have achieved their objectives as they develop new ones. An example is the Oasis Forum, whose aim was to garner opposition to President Chiluba’s attempt to stand for a third term. Thirdly, organizations are distinguished from other social entities by virtue of the fact that they exist to achieve certain goals. However, this is a matter of degree in that not all members may know or agree on what the goals are. The more explicit and specific the goals of a social grouping are, the more likely it is considered to be an organization. The fourth characteristic of an organization is that it involves specialization and requires coordination. Labor is divided up in ways that are believed likely to positively contribute to the realization of organizational goals. Nonetheless, specialization requires that mechanisms for coordinating the various specialized activities are put in place. It must be noted that the degree of specialization and coordination varies between organizations with small ones (in terms of the number of people involved) having a less simpler form of specialization and coordination , usually by the owner, while large ones have a more sophisticated form. In view of the above, therefore, organizations may be defined as social entities engaged in a systematic and coordinated effort, persistently over a period of time, in pursuit of goals which convert resources into goods and services which are needed by the consumers. Sufficed to say this, organizations do not exist in isolation. They are part of the wider fabric of society in general and as such are influenced by, and to some extent may influence, the environment...

...Evolution of Porter'sFiveForcesModelFiveforces is a framework for the industryanalysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. Michael Porter is a professor at Harvard Business School andis a leading authority on competitive strategy and international competitiveness.Michael Porter was born in Ann Arbor, Michigan.
Fiveforces uses concepts developing, Industrial Organization (IO) economics to derive fiveforces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the industry profitability. An "unattractive" industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition".
Introduction
FiveForcesModel by Michael Porter
FiveForcesmodel of Michael Porter is a very elaborate concept for evaluating company's competitive position. Michael Porter provided a framework that models an industry and therefore implicitly alsobusinesses asbeing influenced by five forces.Michael...

...to compete in industry. Porter fiveforcesmodel of competitive analysis is widely used approach for developing strategies in many industries. The intensity of competition varies across industry. The intensity of competition is higher in low return industry as compared to high return industry due to less requirements of capital and common products that requires minimum R & D and efforts for production.
According to porter, the nature of competitiveness in a given industry can be viewed as a composite of fiveforces.
1. Rivalry among competitive firms
2. Potential entry of new competitors
3. Potential Development of Substitute Products
4. Bargaining power of suppliers
5. Bargaining power of consumers
Rivalry Among Competitive Firms
Rivalry among competing firms is the most powerful of the five competitive forces.The ongoing war between firms competing in the same industry for gaining customer share to increase revenues and profits. The competition is more intense if firm pursue strategies that gives competitive advantage over the strategies pursued by rivals.
Developing new strategies is more easier than retaining the uniqueness of the strategies to gain competitive edge over rivals in the industry. Changes in strategy by one firm may be met with...

...article looks at a methodology called the Porter’sFiveForcesAnalysis. In his book Competitive Strategy, Harvard professor Michael Porter describes fiveforces affecting the profitability of companies. These are the fiveforces he noted:
1. Intensity of rivalry amongst existing competitors
2. Threat of entry by new competitors
3. Pressure from substitute products
4. Bargaining power of buyers (customers)
5. Bargaining power of suppliers
These fiveforces, taken together, give us insight into a company's competitive position, and its profitability.
Rivals
Rivals are competitors within an industry. Rivalry in the industry can be weak, with few competitors that don’t compete very aggressively. Or it can be intense, with many competitors fighting in a cut-throat environment.
Factors affecting the intensity of rivalry are:
* Number of firms – more firms will lead to increased competition.
* Fixed costs – with high fixed costs as a percentage of total cost, companies must sell more products to cover those costs, increasing market competition.
* Product differentiation – Products that are relatively the same will compete based on price. Brand identification can reduce rivalry.
New Entrants
One of the defining characteristics of competitive...

...The FiveForcesModel of Porter
The FiveForcesModel (P5F) and the framework behind it dates back to the early 80s and was the work of Michael Porter, a scholar working and teaching at the Harvard Business School.
This model (see figure 1), as declared by its creator, was able, at that time, to fill a void, in the management field corresponding to the development of a new discipline, Competitive Strategy. It came at a time when down-sizing, re-engineering etc. were elements of strategic choice. The intent of Porter was to provide an overall model that would help enterprises realize the impact of external scenarios (that he calls forces) on their overall performance.
One fatal attraction of the P5F model was that it finally allowed companies to assess simultaneously the industry in which it was competing thus indirectly understanding its competitors, and subsequently decide and implement a competitive strategy. It also coincided with a marked acceleration of competition in the USA. It was, and still is considered to be a unique, simple, easy-to-understand, intuitive, structured framework for company strategy. The P5F model also helps develop a competitive company position along side adequate strategies to create value and therefore outperform its rivals: in essence it provides the helicopter view...

...﻿Porter’sFiveForcesAnalysis
Michael Porter provided a framework that analyses an industry as being influenced by fiveforces. It has been suggested that management, attempting to establish a competitive marketing advantage over rivals, can use this model to understand the industry context in which the business operates and take appropriate strategic decisions.
Threat of entry
This means the ease with which other firms can join the industry and compete with existing businesses. The threat of entry is greatest when:
economies of scale are low in the industry
technology needed to enter the industry is relatively cheap
distribution channels are easy to access, e.g. retail shops are not owned by existing manufacturers in the industry
there are no legal or patent restrictions on entry
The importance of product differentiation is low, so extensive advertising may not be required to get established.
The power of buyers
This refers to the power that customers have on the producing industry. For example, if there are four major supermarket groups that dominate this sector of retailing, their buyer power over food and other producers will be great. Buyer power will also be increased when:
there are many undifferentiated small supplying firms, e.g. many...

...Porter’sFiveForcesModelAnalysis
Pharmaceutical Industry
The Threat of New Entrants: Low-to-moderate threat of new entrants due to some barriers that are difficult to overcome. The high research and development costs for new drugs increase the barrier to entry and the government policies restrict and regulate the medicine market.
The Bargaining Power of Buyers: Low-to-moderate bargaining power of buyers because the main customers of pharmaceutical industry are hospitals, health care organisations and patients who are scattered. Hospitals and health care organisations buy in huge quantities and have pressure on pharmaceutical companies to price adjustment. The switching cost is low. However, the patients have low bargaining power only comply with doctor.
The Bargaining Power of Suppliers: Low bargaining power of suppliers as pharmaceutical industry relies on several suppliers such as chemicals. There is a low cost to switch their suppliers and the large number of players in industry decreases the bargaining power.
The Threat of Substitutes: Low-to-moderate threat of substitutes because it is hard to duplicate the raw materials of medicine and no substitutes for them. With the development of technologies, biotechnology is a threat to synthetic pharmaceutical products.
Rivalry amongst competitors: High competition amongst competitors....